Secretarial Practice Answer the following questions

(ii) Facilitates listing of shares:
The companies that issue shares to the public can get their shares listed in one or more stock exchanges thus, enabling them to raise long-term funds through the issue of shares.

(iii) Facilitates trading of shares:
The stock exchanges facilitate the trading of shares between sellers and buyers thus, brings liquidity to the shares. Sellers can sell shares and realize cash when in need of funds or whenever they want to book profits.

(iv) Generate Employment:
Stock Exchanges generate employment facilities in the country as a number of brokers, sub-brokers, agents, and others employment. Stock Exchanges also facilitate indirect employment in the various sectors.

(v) Facilitates Capital Formation:
Stock Exchanges encourage investors to invest in the primary and secondary stock markets. By investments, money is saved. These savings leads to investment in shares and other securities thus, leading to capital formation.

(vi) Stimulates Industrial Development:
The stock exchanges facilitate mobilization of long-term funds through the issue of shares and debentures which are utilized by companies for Expansion and Modernization, Setting up of new projects.
Thus enhancing and improving industrial development in the country.

(vii) Facilitates Regional Development:
The stock exchanges facilitate regional development through companies that generate long-term funds due to them. Thus, utilizing the funds generated for the development of backward regions by setting up new units.

(viii) Provides Investment Opportunity:
The stock exchanges provide additional opportunities for investors to invest in shares. Usually, returns from stock markets are much higher as compares to traditional forms of investment, provided investment is done in good companies that provide good returns to investors.

(ix) Provides revenue to the government.
The stock exchanges provide revenue to the government either directly or indirectly. The stock exchanges pay tax on the revenue earned by them, an investor who invests in stock markets are subject to capital gains tax. The companies also pay their taxes thus, providing revenue to the government.

(x) Promotes efficient management of listed companies:
Stock Exchanges indirectly promote the efficiency of the management of listed companies. Listed companies have to perform well for their own interest and that of their shareholders. The efficiency of the listed company is reflected in the share prices on stock markets. Higher the efficiency, higher is the performance and as such higher the prices of the shares on the stock markets.

Organization Structure of Stock Exchanges in India:
In India, the stock exchange may be organized in one of the following three forms:

• Voluntary Non-Profit making organization
• Companies with liability limited by shares
• Companies with liability limited by guarantee

The Securities Regulation Act 1956 provides rules for functioning, licensing, recognition, and controlling the stock exchanges.

Features of Stock Exchange:
(i) Market for Securities:
Stock exchange deals with securities. Securities include equity shares, preference shares, debentures, government securities, and bonds, etc. It is a trading place where corporate securities and government securities are traded.

(ii) Second Hand Securities:
Stock exchange includes trading of securities that are already issued by the companies. In other words, second-hand securities are bought and sold among investors in the stock exchange.

(iii) Listed Securities:
Only listed securities can be traded on a stock exchange. Listing of securities provides protection of the investor’s interests. The company also has to strictly follow the rules laid down by the stock exchange.

(iv) Organised and Regulated Market:
The stock exchange is an organized market of securities. All the listed companies have to follow the rules and regulations laid down by the stock exchange.

(v) Specific Location:
The stock exchange is a place where securities are traded. It is a marketplace where brokers and intermediaries meet to conduct dealings in securities. Now, the stock exchange has also been digitalized.

(vi) Only Members can trade:
The stock exchange is only open to its members who are known as brokers. Brokers act as agents between members or their authorized agents on behalf of the investors.

• Definition Of Stock Exchange: According to the Securities Contracts (Regulation) Act of 1956, the term ‘stock exchange’ is defined as “An association, organization or body of individuals, whether incorporated or not established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities.”

  Husband and Dockerary have defined stock exchange as: “Stock exchanges are privately organized markets which are used to facilitate trading in securities.”

  Stock Exchange performs various important functions discussed as follows:
  (i) Mobilisation of Savings:
  Stock markets are organized and regulated markets that protect the interests of the investors. It obtains surplus funds (savings) from individual households private and public sector units etc. and channelizes them in the proper direction. It thus provides a ready market for buying and selling securities.

  (ii) Capital Formation:
  Investors in securities are attracted due to good returns on investments and capital appreciation. The stock exchanges encourage investors to invest in the primary and secondary stock markets for investing in stock markets, investors need to save money. Savings lead to investment in shares and other securities. Such investments lead to capital formation.

  (iii) Pricing of Securities:
  The price of the securities are sold in the stock markets is based on demand and supply forces listed securities get prestige and reputation. When the prices of the shares go up constantly, their security value increases. The valuation of securities is useful to investors, the government, and creditors. The investors thus can gauge their investment worth and the creditors too can estimate the creditworthiness of a company.

  (iv) Economic Barometer:
  A stock exchange is a reliable barometer to measure the economic condition of a country. They encourage investors to invest and help companies to generate long-term funds thus promoting industrial development. The rise or fall in the share prices indicates the boom or recession cycle of the economy. The stock exchange is the pulse of the economy and the mirror that reflects the country’s economic status.

  (v) Protecting Interest of Investors:
  In the stock markets, only the listed securities are traded. The stock exchanges protect the interests of the investors through the strict enforcement of their rules and regulations. The securities Control (Regulation) Act 1956, provides rules for the functioning, licensing, and controlling speculations of stock exchanges. The SEBI also plays an important role in monitoring stock exchanges thus protect the interests of the investors by regulating intermediaries, monitoring speculation, and making the investors aware of their rights through IEPF, etc.

  (vi) Liquidity:
  The stock exchange facilitates liquidity by providing a ready market for the sale and purchase of securities. It provides marketability along with liquidity to investments in corporate enterprises. Because of stock exchange investors can convert a long-term investment into short-term and medium-term as it provides a two-way outlet by transforming money into an investment and vice versa without much delay.

  (vii) Better Allocation of Capital:
  The stock exchange regulates and controls the flow of investment from unproductive to productive, uneconomic to economic, unprofitable to profitable enterprises. Thus, savings of the people are channelized into industry yielding good returns, and under utilization of capital is avoided.

  (viii) Contributes to Economic Growth:
  The stock exchange help in the process of rapid economic development by speeding up the process of capital formation as well as resource mobilization. It helps in raising medium as well as long-term capital for the development and expansion of the companies. The resource of the economy flows from one company to another. This leads to capital formation as well as economic growth.

  (ix) Providing Scope for Speculation:
  Stock Exchanges’ like any other market provides a mechanism for evaluating the prices of securities through the basic law of demand and supply. Stock Exchange prices help to check the real worth of the securities in the market and thus permit healthy speculation of securities.

  (x) Promotes the Habit of Savings and Investment: The stock market offers attractive opportunities for investment in various securities by obtaining funds from surplus units such as households, individuals, public sector units, central government, etc, and channelizing these funds for productive purposes.